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In the Midst of Great Uncertainty, Hospital Margins Taper Off

After significant market changes following the implementation of the Affordable Care Act, Oregon’s community hospitals saw a year-over-year decrease in operating margins and inpatient discharges, while charity care spending rose slightly and emergency room visits increased according to the newly-released quarterly report by Apprise Health Insights on acute care hospitals’ financial and utilization trends. With uncertainty around the future of the ACA any downward trend has the potential for amplification.

Hospitals’ aggregate operating margin fell to 3.6 percent in the third quarter of 2016 lower by nearly two percentage points from the same quarter in 2015 when it was 5.2 percent; and inpatient discharges fell by 1.6 percent to 79,982 in Q3 2016 compared to the same quarter in 2015, when it was 80,258. Meanwhile, in dollars, charity care expenses in the third quarter of 2016 rose to $89.1 million, up 39 percent from the same time in 2015. Emergency department visits also increased 0.6 percent, with 337,608 total visits in the third quarter of 2016 as compared with the same quarter in 2015.

“This report illustrates the unique challenges hospitals face as we traverse a new era of health care transformation, post-ACA,” said Andy Van Pelt, executive vice president of the Oregon Association of Hospitals and Health Systems. “At the same time, the last election brought uncertainty for the future of health care delivery. Serious questions are before us simultaneously at both the state and federal levels regarding the ability of our state’s healthcare system to continue Oregon’s health care transformation efforts. The financial trends we are seeing now could be significantly different from what we see in the future.”

Importantly, Apprise Health Insights’ analysis shows that while margins may look healthy in the aggregate, more than half of Oregon hospitals fall below the bond rating agencies’ general standards for access to AA-rated bonds, which is a five percent operating margin.

Meanwhile, the year-over-year increase in charity care from stands in contrast to the prevailing policy narrative that charity care has been all but eliminated in Oregon due to the Affordable Care Act. While it has fallen substantially from its pre-ACA levels, it has stabilized at the new lower level with the similar quarterly fluctuations as other financial line items. The demand for charity care has not entirely gone away, and with threats to the ACA at the federal level, it could change dramatically in coming years.

It is important to note that after a drop in uncompensated care spending in 2014, in 2015 hospitals announced a community benefit pledge to maintain, or increase, the amount they spend on community benefit, despite a drop in uncompensated care.

According the Oregon Health Authority's data, in 2015 Oregon’s community hospitals fulfilled that pledge by providing $1.9 billion in community benefit activities. In the same year, hospitals experienced 348,138 inpatient stays, 1.4 million emergency room visits, and 11 million outpatient visits, and welcomed more than 44,000 new babies into the world.

“We are proud of Oregon’s hospitals for maintaining their deep commitment to community benefit, even as the health care landscape shifted. As we look toward the future and the possibility of further shifts, we believe our hospitals will continue to maintain their core commitment to their communities through these services,” added Van Pelt.